Correlation Between Exxon and Decibel Cannabis

Can any of the company-specific risk be diversified away by investing in both Exxon and Decibel Cannabis at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Exxon and Decibel Cannabis into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Exxon Mobil Corp and Decibel Cannabis, you can compare the effects of market volatilities on Exxon and Decibel Cannabis and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Exxon with a short position of Decibel Cannabis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Decibel Cannabis.

Diversification Opportunities for Exxon and Decibel Cannabis

-0.16

Correlation Coefficient

Exxon  Decibel Cannabis

Good diversification

The 3 months correlation between Exxon and Decibel is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Decibel Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Decibel Cannabis and Exxon is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Exxon Mobil Corp are associated (or correlated) with Decibel Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Decibel Cannabis has no effect on the direction of Exxon i.e., Exxon and Decibel Cannabis go up and down completely randomly.

Pair Corralation between Exxon and Decibel Cannabis

Considering the 90-day investment horizon Exxon is expected to generate 1.29 times less return on investment than Decibel Cannabis. But when comparing it to its historical volatility, Exxon Mobil Corp is 4.62 times less risky than Decibel Cannabis. It trades about 0.02 of its potential returns per unit of risk. Decibel Cannabis is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  11.00  in Decibel Cannabis on December 2, 2024 and sell it today you would lose (5.90) from holding Decibel Cannabis or give up 53.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Exxon Mobil Corp  vs.  Decibel Cannabis

Exxon Mobil Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Exxon Mobil Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Exxon is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Decibel Cannabis

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Decibel Cannabis are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Decibel Cannabis reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Exxon and Decibel Cannabis

The main advantage of trading using opposite Exxon and Decibel Cannabis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Decibel Cannabis can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Decibel Cannabis will offset losses from the drop in Decibel Cannabis' long position.

The idea behind Exxon Mobil Corp and Decibel Cannabis pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.